Gas Prices Expected to Head Back Down

Gas prices appear to be heading back down after jumping up over the past two weeks.

GasBuddy Senior Petroleum Analyst Gregg Laskoski says part of the reason for the big jump is a phenomenon known as price cycling. He says it causes prices in states like Indiana to vary much more widely than the national average, “In the Great Lakes region, you have some dominant retailers who will drive prices down to very low levels and their competition will follow them as far as they possibly can, and sometimes that brings prices to a level where the retail or profit margins are paper-thin.”

He says that can lead to problems, “Instead of bringing the prices back up on a gradual scale comparable to the way they went down, you’ll see a big spike. You know, sometimes it could be 20-, 25-cents a gallon literally overnight, and it causes a lot of people to scratch their heads and wonder what’s going on.” He says this can actually be beneficial to consumers since the low prices at the bottom of the cycle compensate for the occasional price jumps.

However, this isn’t the only thing affecting prices at the pump. Laskoski says Chicago wholesale gasoline prices spiked late last week, matching Los Angeles for the highest wholesale prices in the country, but he says they’re now on their way down and retail prices are following, “I would not be surprised if by the end of the week, Indiana moves much closer to the national average and at some point on the next couple of weeks, I think you’re going to see Indiana prices moving lower.”

He says prices are also helped on their way down by the change from summer-blend to winter-blend gas, “On September 16, basically that was the day that the requirement for summer-blend gasoline expires, and because of that, that means refineries can put into the market the cheaper winter- blend gas. It’s cheaper because it has fewer additives. The reason the summer-blend has those additives is it allows the gasoline to burn cleaner.” The EPA requires that cleaner gasoline to keep pollution down during the peak driving season that occurs during the summer months. That means the requirement for the more expensive gas ends when demand for gas is going down, driving prices down even more.

Laskoski says over the longer term, with Indiana’s gas prices getting closer to the national average and the national average continuing to drop, the state could see prices below $2 a gallon before the end of the year.